Mutual Funds’ Reporting Frequency and Strategic Share Repurchases

56 Pages Posted: 14 May 2020 Last revised: 9 Oct 2021

See all articles by Thomas Bourveau

Thomas Bourveau

Columbia University - Columbia Business School, Accounting, Business Law & Taxation

Xinlei Li

Hong Kong University of Science and Technology

Daniele Macciocchi

University of Miami Herbert Business School

Chengzhu Sun

The Hong Kong Polytechnic University

Date Written: September 1, 2019

Abstract

We study the consequences of increased reporting frequency in a delegated asset management framework. We build on economic theory establishing that more frequent information about an agent's action increases the agent's career concerns and short-termism. Consistent with theory, we find that following a regulatory change that increased the reporting frequency of mutual funds' portfolio holdings, mutual funds are more likely to divest from firms that miss a quarterly earnings target. This suggests that funds managers become more short-term focused as missing an earning target leads to a negative market reaction. Next, we find that mutual fund managers' short-termism translates into portfolio firms' short-termism, as firms strategically increase share repurchases following the regulatory change. Finally, we find that increasing share repurchases pays off, as it significantly mitigates mutual funds' outflows. Our results shed light on how increased reporting frequency between mutual fund managers and their investors induce firms' short-termism.

Keywords: Myopia, Reporting frequency, Share repurchases, Mutual funds

JEL Classification: G23, G28, G30, G31, M40, M41

Suggested Citation

Bourveau, Thomas and Li, Xinlei and Macciocchi, Daniele and Sun, Chengzhu, Mutual Funds’ Reporting Frequency and Strategic Share Repurchases (September 1, 2019). Available at SSRN: https://ssrn.com/abstract=3584004 or http://dx.doi.org/10.2139/ssrn.3584004

Thomas Bourveau

Columbia University - Columbia Business School, Accounting, Business Law & Taxation ( email )

3022 Broadway
New York, NY 10027
United States

Xinlei Li

Hong Kong University of Science and Technology ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

Daniele Macciocchi (Contact Author)

University of Miami Herbert Business School ( email )

P.O. Box 248126
Florida
Coral Gables, FL 33124
United States

Chengzhu Sun

The Hong Kong Polytechnic University ( email )

M849, 8/F Li Ka Shing Tower
Hung Hom
Kowloon, 999999
Hong Kong

HOME PAGE: http://https://af.polyu.edu.hk/people/academic-staff/dr-chengzhu-sun/

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